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Monday Market Madness – Trade Wars Escalate

Now what has President Trump done?

You know, you shouldn't have to wake up in the morning and have that be your number one concern.   The President of the United State of America is, traditionally, a stabilizing force in the World, not an agent of chaos!  While, Republican voters seem to be loving the chaos so far (90% of them approve of the President) – how many times can he roll the dice before he craps out and pisses off the whole table?

Aside from escalating the Trade War this weekend by barring Chinese investments in US tech firms (sending the markets tumbiling again), Trump has decided to suspend Due Process, which is in both the 4th and 15th Amendments to the Constitution because that's how important people used to think it is!  Now, ordinarilly we'd say "Well the President can't just suspend due process, this isn't a dictatorship, we have a system of checks and balances to reign in a President from having absolute power.  Even if he could get a Republican Congress to go along with something so outrageous, we have a Supreme Court full of lifetime apointees who will prevent him from violating the Constitution."

Did you manage to make it through that without laughing?  Well, that's the situation we have now, unchecked power in the hands of Donald Trump and today he's using it to suspend due process.  Of course, it's only being used against immigrants at the moment but that's kind of the point of that famous poem by Pastor Niemoller about the Holocost:

"

First they came for the Socialists, and I did not speak out—

Because I was not a Socialist.

Then they came for the Trade Unionists, and I did not speak out— 

Because I was not a Trade Unionist.

Then they came for the Jews, and I did not speak out— 

Because I was not a Jew.

Then they came for me—and there was no one left to speak for me."

Image result for trump palpatine unlimited powerThe ACLU released a statement Sunday condemning Trump’s tweets, calling his suggested approach “both illegal and unconstitutional.” The organization then called on “any official who has sworn an oath to uphold the Constitution and laws” to disavow Trump’s suggestion “unequivocally.”  Well, good luck with that.  

While US Republican's may approve of what the President is doing, the Rest of the World certainly does not with Asian markets turning down 1% this morning and Europe down over 1% and our Futures, as of 8:30, indicate about a 0.5% drop at the open.  It's not a big deal so far – all we're going to do is retest last week's lows – only if we begin to fail them will it be time to add more hedges than we already have (quite a lot!).

There are direct and indirect effects to the trade war.  Harley Davidson (HOG), for example, says the EU's retaliatory tariffs will add $2,200 (10%) to the cost of the average motorcycle.  Harley says it will not raise retail prices or wholesale prices to dealers to cover the costs of the tariffs, because it "believes the tremendous cost increase, if passed onto its dealers and retail customers, would have an immediate and lasting detrimental impact to its business in the region, reducing customer access to Harley-Davidson products and negatively impacting the sustainability of its dealers’ businesses." 

That will translate to a $100M hit to the bottom line in 2018 and, in a complete policy backfire, HOG plans to address the issue by moving its export manufacturing to the EU!  Just because the policy is clearly failing to have the desired effects doesn't mean Trump will change them.  This is a slow-motion train-wreck we'll be hearing about as thousands of companies report their earnings woes in the next few quarters.  

Related image

On the indirect side, Boeing (BA) stands to lose a 180-plane, $18Bn order from China, who are meeting with Airbus to discuss moving the massive order to a more friendly environment.  Meanwhile, China is boosting their own market to offset any damage done by Trump's Tariffs by cutting reserve requirements at banks by $108Bn, a 0.5% cut in the reserve ratio.   Nonetheless, both China and the EU have warned this weekend that trade wars with the US will lead to a Global Recession.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy – and that is just 1/10th of the tariffs Trump has said he wants to place!

It's a busy data week led by Consumer Confidence tomorrow, Durable Goods on Wednesday, GDP Thursday and Personal Income, Spending and Sentiment on Friday so a great look at consumers this week into Q2 earnings reports:

Date ET Release For Actual Briefing.com Forecast Briefing.com Consensus Prior
Jun 25 10:00 New Home Sales May   673K 666K 662K
Jun 26 09:00 S&P Case-Shiller 20-city Index Apr   6.8% 6.8% 6.8%
Jun 26 10:00 Consumer Confidence Jun   128.2 127.1 128.0
Jun 27 07:00 MBA Mortgage Applications Index 06/23   NA NA 5.1%
Jun 27 08:30 Durable Orders May   -1.3% -1.0% -1.7%
Jun 27 08:30 Durable Goods –ex transportation May   0.5% 0.4% 0.9%
Jun 27 08:30 Adv. Intl. Trade in Goods May   NA NA -$68.2B
Jun 27 08:30 Adv. Wholesale Inventories May   NA NA 0.0%
Jun 27 10:00 Pending Home Sales May   1.0% 0.8% -1.3%
Jun 27 10:30 Crude Inventories 06/23   NA NA -5.9M
Jun 28 08:30 GDP – Third Estimate Q1   2.2% 2.2% 2.2%
Jun 28 08:30 GDP Deflator – Third Estimate Q1   1.9% 1.9% 1.9%
Jun 28 08:30 Initial Claims 06/23   222K 220K 218K
Jun 28 08:30 Continuing Claims 06/16   NA NA 1723K
Jun 28 10:30 Natural Gas Inventories 06/23   NA NA +91 bcf
Jun 29 08:30 Personal Income May   0.4% 0.4% 0.3%
Jun 29 08:30 Personal Spending May   0.5% 0.4% 0.6%
Jun 29 08:30 PCE Prices May   0.2% 0.2% 0.2%
Jun 29 08:30 PCE Prices – Core May   0.2% 0.2% 0.2%
Jun 29 09:45 Chicago PMI Jun   60.5 61.0 62.7
Jun 29 10:00 Univ. of Michigan Consumer Sentiment – Final Jun   99.3 99.0 99.3
 

We'll probably test good old 2,728 on the S&P (/ES) and here's a chance to prove a bullish consolidation if it holds.  The Nasdaq (/NQ) is down to 7,159 and still almost 10% above our 6,500 target but the Dow (/YM) is falling fast at 24,400 – just another 1,000 points to hit a proper retrace there and, of course, the Russell (/TF) thinks Trade Wars don't matter but, if the VIX is over 15 – I'd short the crap out of /TF – now 1,683 with tight stops over 1,700.

Stay tuned – it's going to be an exciting week! 

 


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  1. good morning


  2. Good Morning.


  3. Good morning! 

    Not off to a very good start so far, VIX is over 15, 2,728 looks like it will be tested and failure there would be – BAD! 

    The RUT is actually moving down for a change.  

    Copper failing $3 would be a bad sign.

    Dollar not likely to fail 94 and bounce from 95.20 would be 0.25 points (weak) and 0.5 (strong) and that would put more downward pressure on indexes and commodities.  

    So, from that, we can be pretty sure 2,728 will ultimately fail and that means we are leaning bearish at the moment, not playing for bounces.  


  4. New Home Sales were up 6.7%, surprisingly good but last month was revised down 20,000 (3%), so half of this month's gain comes from the downward revision to last month – sneaky!  

    Always gotta keep it in perspective as a healthy market for new home sales, in a country with 110M homes, is more like 1M (replacing homes every 100 years – still not great and not accounting for growth), not 666,000!


  5. Phil – How was the weekend?


  6. OLED – Falling knife.


  7. IQ    there was a 1500 lot trade in the Dec $35's


  8. Made a 300.00 shorting CL think I’ll call it a day since I missed all the indexes


  9. Hi Phil,

    looks like 2,728 on the S&P (/ES) is broken does that mean look out below ? I missed out on the shorts but trying to understand what is the game plan next

    Thanks as always

    Pat


  10. Weekend/1020 – Was great, thanks.  Lots of family stuff.

    OLED/Albo – Wow.  Who was buying them at $200?

    So there's 10% down in the Dow – now if we can only get the others to make a proper correction…

    /CL/Bert – Nice job, it's a tricky short here but I do like below $68.50 with tight stops.  

    2,728/Pat – Well it is Monday (so I shouldn't even be here!) so not too meaningful unless we stay below for a day or two and then have trouble getting back over but certainly nothing to be bullish about as we're back in our usual trading range.  Game plan going forward is to test the bottom of the range again (2,550).


  11. Covering UVXY puts… one of my best positions since the Feb vol-pocalypse. Didn't think I'd get these 14s back today but it looks possible!


  12. 2,700 being tested now – very rare we get a 50-point drop in a day.   

    NFLX down almost 10%!

    Nas overall down more than 2.5% – ouch!


  13. Phil / RB- well, if you're not going to take advantage of your day off today then Ill take advantage of your knowledge lol!

    With the 4th being on a Wednesday, are you looking to go long /RB at any point this week or thinking the holiday demand will be a let down?  Thx



  14. Prosecutors cancel Stormy Daniels interview, attorney says


  15. M

    2000 lot of 2020 $30 puts sold to open at $3.80


  16. OLED/albo – no kidding. I blame the President.


  17. OSTK – down 25% in a few days… because must collect sales tax, and expanding (because of that). Gotta sell some puts here.


  18. With all the tariff talk unsettling the markets, the only thing that gives me some degree of comfort is that Wilbur Ross,  Commerce Secretary, seems to be very much involved in the process. Mr. Ross is known as a level headed individual  with vast experience in the international markets. Still scary though.


  19. M/Phil- did'nt we sold M puts for LTP?


  20. Ross/Albo – Another guy that looks out for #1, not sure how much help he'll really be unless it happens to be in his interest.

    M/Dave – If we did sell puts, I did not log them.  I know we did last year.

    GE: Undervalued By About $53 Billion – Upside Potential Roughly 47%

    • General Electric (GE -1.5%agrees to sell its Distributed Power business to P-E firm Advent International for $3.25B, confirming an earlier report.
    • The transaction includes Distributed Power’s Jenbacher and Waukesha engines, as well as manufacturing sites in Austria, Canada and the U.S.
    • The Distributed Power business had sales of $1.32B for 2017.

     

     Nasdaq tumbles 2%; Mnuchin clarifies on China tech crackdown 2h 56

    • Semiconductor stocks are taking a beating today after early morning reports and U.S. Treasury Secretary Steven Mnuchin’s response tweet about reported investment restrictions on China.
    • Mnuchin’s tweet: "On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn’t exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology."  
    • The Philadelphia Semiconductor Index is down 3.7%.    
    • Semiconductors stocks on the move: Micron (MU -7%), Nvidia (NVDA -5.7%), Marvell (MRVL-5.6%), AMD (AMD -5.5%), ON Semiconductors (ON -5.2%), ASML (ASML -5%), Cypress Semiconductors (CY -4.9%), Monolith Power (MPWR -4.2%), Intel (INTC -4.2%), MKS Instruments (MKSI -4.1%), Cree (CREE -3.8%), Cavium (CAVM -3.8%), Teradyne (TER -3.6%), Applied Materials (AMAT -3.7%), Silicon Motion (SIMO -3.5%), Microchip (MCHP -3.7%), Maxim (MXIM -3.6%), Integrated Device (IDTI -3.5%), Lam Research (LRCX -3.1%), Texas Instruments (TXN -3%), Qualcomm (QCOM -2.9%), Xilinx (XLNX -2.7%), Qorvo (QRVO -2.5%), Analog Devices (ADI -2%), and InterDigital (IDCC -2.1%). 
    • The FDA approves GW Pharma’s (NASDAQ:GWPH) Epidiolex to treat rare childhood seizures.
    • Epidiolex is the first US-approved cannabinoid and the drug could achieve $1.2B in sales by 2022, according to Clarivate data. 
    • The potential approval was previously reported by the FT. 
    • GW Pharma shares are down 1.2% to $149.38.  
    • Previously: First U.S. approval of cannabis-based drug (June 25)
    • T. Row Price's (NASDAQ:TROW) midyear market outlook sees generally "favorable" economic conditions for the rest of the year though volatility is likely to continue.
    • Earnings growth strong and not expected to slow dramatically over the next few quarters, but likely peaked in H1.
    • "High valuations across most global asset classes and a range of economic and policy risks – including the threat of trade protectionism – create the potential for volatility to persist moving into the second half of 2018. Such volatility could produce potentially attractive buying opportunities for long-term investors," according to TROW.
    • "We're not necessarily at the end of a bull cycle, but if you take a multi-year view, you should probably expect lower returns going forward than what we've experienced over the last couple of years,"  says  Rob Sharps, TROW's head of investments and group chief investment officer.
    • The report doesn't dismiss trade tensions dominating the news, especially when it concerns China. Mark Vaselkiv, portfolio manager and chief investment officer of fixed income, says: "Since all emerging countries economically revolve around China, a meaningful trade conflict between the U.S. and China would have serious implications."
    • China's gasoline exports rose 134% Y/Y in May to 1.47MT, and up from 1.21MT in April as state refiners sought to profit from good export margins and additional quota.
    • May diesel exports also rose up 62.6% Y/Y to 2MT while kerosene exports were up 43.1% Y/Y to 1.42MT.
    • Liquefied natural gas imports rose 42.8% Y/Y to 4.15MT in May, driven by strong consumption from chemical plants and reduced domestic production.
    • The most dramatic event in the oil market last week occurred in Canada, not at the OPEC meeting in Vienna, according to Goldman Sachs analysts who say an outage at the Syncrude oil sands facility could lead to a shortage in North America for all of July and shrink stockpiles at the Cushing, Okla., storage hub.
    • Goldman says the outage will support American oil prices while the OPEC deal to raise production may weigh on Brent crude and lead to a 360K bbl/day shortage for July, which could prompt a further drawdown in Cushing inventories that already have dropped for five weeks with the start of the summer driving season.
    • “With the global market pricing to pull crude out of the U.S., this loss of U.S. supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required,” Goldman writes. “And while Saudi is already ramping up exports, these will not be delivered until August with June stock draws already accelerating.”
    • In today's trade, WTI -0.6% at $68.14/bbl, Brent -1.8% at $74.19/bbl.
    • The yield curve is "perilously close" to predicting a recession, which is something it's done in the past with "surprising accuracy," the New York Times reports.
    • On Thursday, the gap between the 2-year and 10-year U.S. Treasury notes was about 0.34 percentage points; the last time the gap was that low was in 2007, when the U.S. economy was on the precipice of the financial crisis.
    • At midday today, the gap stood at about 0.35 percentage points. U.S. 10-year treasury yielddown 3 basis points to 2.871% at midday, while  the 2-year treasury is down 2 basis points to 2.525%.
    • When the economy is strong, yields on longer-term government bonds are higher than short-term ones.
    • Lately though, the Federal Reserve has been raising short-term interest rates while long-term government bond rates have been resistant to increasing, signaling investors' concern about long-term growth.
    • In the past 60 years, every recession has been preceded by an inverted yield curve, according to research by the San Francisco Fed. And there's been only one false positive--in the mid-1960s.
    • Previously: Fed Chair speaks on monetary policy, uncertainty, and tight labor markets (June 20)
    • American Express (AXP +2.1%) didn't violate federal antitrust laws with restraints the credit card company places on merchants, the U.S. Supreme Court ruled.
    • At issue is American Express's rules that prevent merchants who accept its cards from encouraging consumers to use other credit cards that cost the merchants less in fees.
    • The court ruled 5-4 in AXP's favor.
    • The Obama administration and a group of states filed the lawsuit against AXP in 2010.
    • Previously: Online retail rattled by Supreme Court ruling (June 21)
    • Dallas Fed Manufacturing Survey+36.5 vs. +27.0 consensus and +26.8 prior.
    • Production: +23.3 vs. +35.2 prior.
    • Capacity Utilization: +21.7 vs. +32.2 prior.
    • New Orders: +29.6 vs. +27.7 prior.
    • German business confidence deteriorated slightly in June to 101.8 from 102.2 in May, compared to the forecast of 101.9
    • Businesses assessed the current situation worse, with the sub-index falling to 105.1from 106.0, compared to expectations for 105.6.
    • The business expectations index ticked up to 98.6 from 98.5 in May, compared to the estimates of 98.0.
    • Carnival (CCL -8.5%) topped estimates, but trimmed its full-year EPS outlook to $4.15-$4.25 from $4.20-$4.40. Among the issues are higher fuel costs and changes in forex rates.
    • The company did lift its net revenue yield to about 3% from 2.5%, but the Street was at 3.15%.
    • The conference call is just underway.
    • Norwegian Cruise (NCLH -5.1%), Royal Caribbean (RCL -4.5%)
    • Previously: Carnival beats by $0.09, beats on revenue (June 25)
    • First Solar (NASDAQ:FSLR+3.8% premarket as BofA Merrill Lynch upgrades shares to Buyfrom Neutral with a $63 price target, citing latest IRS tax guidance allowing as much as a four-year ITC extension on solar projects, which analyst Julien Dumoulin-Smith says was "the most bullish interpretation IRS could have released."
    • The IRS guidance is likely worth at least $50B to his prior cumulative capex expectations for the sector through 2023, Dumoulin-Smith says; although less confident of a module price recovery, he sees prospects for more U.S.-bound projects.
    • Credit Suisse said Friday that the IRS ruling is positive for solar developers with a strong pipeline, including FSLR and NextEra Energy (NYSE:NEE), while the impact on residential and distributed generators should be relatively smaller given shorter construction times but still positive for Sunrun (NASDAQ:RUN), SunPower (NASDAQ:SPWR) and Vivint Solar (NYSE:VSLR); the ruling is seen as negative for solar manufacturers such as Jinko Solar (NYSE:JKS), JA Solar (NASDAQ:JASO) and Canadian Solar (NASDAQ:CSIQ).

  21.  Just weak bounces so far.  


  22. Phil – I have a much better opinion of Wilbur Ross than you do, but maybe because I've made money following some of his investments.  From what I've seen he is very astute.  Do you really believe that at his age and net worth he would really accept the post as Commerce Secretary for his own gain ? I do not.


  23. Phil / RB - With the 4th being on a Wednesday, are you looking to go long /RB at any point this week or thinking the holiday demand will be a let down?  Thx



  24. /RB/Mike – Sorry, missed that comment before.  We got up over $2.25 on the last holiday and of course demand doesn't live up to it – that's not really the point though, is it?  I think playing /RB over $2, like we did last week, is still a good bet as the odds favor making 0.05 far more than losing it INTO July 4th but I'd be getting out before Tuesday's close.

    CCL down hard on lower guidance and the rest:

    We have RCL in the hedge fund – also taking a hit back to where we came in ($105):

    If we're still down here but stable tomorrow, remind me and we'll add an RCL play to the LTP.

    Ross/Albo – By that logic I should be into Donald Trump…  Maybe you're right though, maybe the news is just fake:


  25. Very nice day on the /RTY shorts for a change.  1,655 is PLENTY for the day (+$1,400/contract) and we're also testing 24,100, 2,700 and 7,000 so we'll see how bouncy we are tomorrow (or in the last 30 mins, of course).

    At least now there are things to buy again! 


  26. Phil / RB- Thanks!


  27. Probably the reason the market is popping.

    ~~SPY -Director of the National Trade Council Peter Navarro on CNBC: No plans to impose investment restrictions; market sell-off is an overreaction  

    I guess I stand corrected on Wilbur Ross.  Sometimes my rose colored glasses get a little foggy. :-)


  28. Ross lost me when he held up the steel and aluminum cans to defend trade tariffs 


  29. BAC/Phil- looks cheap? 


  30. Well, they threw Navarro out there right at 3:30 to save the market. Will have to see if it sticks.

    Ross/Stock – I agree, he lost all credibility with me at that moment. 

    BAC/Dave – Worth a good look, please remind me in the morning as I don’t have time to do a proper job now.   


  31. / RB- Ive been thinking about this and Phil has a great point-

    "We got up over $2.25 on the last holiday and of course demand doesn't live up to it – that's not really the point though, is it?"

    So with the 4th being on a Wednesday, Im still looking to go long before the holiday, but I think going short afterwards might be even more rewarding than usually given the higher chance of demand disappointing.

    We'll see, just my 2 cents…


  32. Does anyone believe that the Canada oil sands outage will affect crude supplies enough to temporarily increase the price of /CL and /RB? If we believe that then we may want to be careful shorting after the 4th.


  33. Big spenders: S&P 500 stock buybacks set record in 1Q


  34. MetLife Accused of Defrauding Investors Over Pension Reserves



  35. Aramco CEO Pledges to Meet Oil Demand After OPEC Strikes a Deal




  36. US judge throws out climate change lawsuits against big oil


  37. Trump to Hit Refiners With a Biofuels Boost





  38. House Republicans Cheer Immigration Bill That They Haven’t Seen






  39. Gold’s Haven Luster Fades


  40. Economists are Watching These Indicators to Gauge Trade War Pain


  41. GOP Leaders Bracing for Second Defeat on Immigration


  42. China’s Xi Tells CEOs He’ll Strike Back at U.S.


  43. China Stock Rout May Worsen, Analysts Warn No End in Sight


  44. Hidden Shorts Build as London Funds Seek Casualties of Cycle




  45. Good morning!

    There was an attempt to get the Futures up but it's failing (2,728 on the button!) – much more likely we at least retest yesterday's lows.

    RUT is already there:

    GE to Spin Off Health-Care Unit in Latest Revamp

    General Electric will spin off its health-care business and unload its ownership in oil-services company Baker Hughes, betting that the once-sprawling conglomerate can reverse a painful slump by further shrinking.